There’s no disputing the fact that to get your business off the ground you do need money. While you must have encountered numerous challenges in your search for angel investors and venture capitalists, to whom you will be required to give away chunks of your company’s equity one at a time, allocating start-up equity is yet another issue.
What is start-up equity?
The percentage of a company’s shares that will be offered to start-up investors is known as equity in a start-up. As a result, investors will receive not only ownership but also rights to the start-up’s prospective income. Stock options are the popular choice.
Equity distribution
A start-up goes through several funding rounds like pre-seed funding, angel funding, and venture capital round-frequently referred to as series A, B, C rounds. Often founders find it challenging to distribute equity for seed funding or decide how much equity for angel investor?
Advent International has provided the following example of an equity distribution after the first round of funding:
- Founders share: 20 to 30 percent distributed among co-founders.
- Seed funding Equity through Angel Investor or in other words
- Angel investor Equity: 20 to 30 percent.
- Venture Capital Providers Equity: 30 to 40 percent.
- Option group: 20 percent, often shared by employees.
How to get investors without giving up equity
As a start-up you put together a pitch, hustle to get in front of the investors, in the hopes they reply as “yes.” If they do, you’ll have to give up some of your stock in exchange for the working capital you’ll require.
Are you worried that your equity position will be diluted, and you may own less of your company?
Don’t worry Coffeemug has compiled some fantastic advice on how to get investors without giving up equity?
Start-up Grants
Grants for businesses can be anywhere from $500 to $100,000. Grants are sometimes given to exceptional business ideas, but they can also be given to a specific group, such as women, in order to help them grow their enterprises. One advantage is that some grants include additional perks such as mentorship.
PRISM’s Technopreneur Promotion Program, Multiplier Grants Scheme (MGS), Unlimited India are some of the Grants provided in India.
Crowdfunding
Crowdfunding is a method of raising funds through online campaigns by seeking modest donations from a large number of people. These individuals do not receive a share of the company’s ownership or a return on their investment. They typically invest to get an advantage, such as an additional unique product or early access to availability.
Kickstarter, Wishberry, Indiegogo are some of the well-known crowdfunding platforms in India.
Pitching contests
Start-up teams in India compete in pitch competitions like TechCrunch Disrupt, Y Combinator Demo Day, and Web Summit PITCH Competition in the hopes of meeting potential investors. This isn’t the most trustworthy source of funding. Regardless, it’s a terrific opportunity to meet new people.
Small business loans
Although many traditional banks are hesitant to issue a line of credit for a start-up firm without a track record of success, there are lenders who specialize in funding small businesses.
Local credit unions may also be ready to take a chance on a start-up when larger banks are hesitant. This type of support may necessitate more investigation or effort than simply submitting an application. Small business loans do not require a founder to give up any stock, thus it is an alternative worth exploring.
Friends and Relatives
When you need money, approaching a family member or acquaintance for a loan is the easiest method to receive it. However, if they are anxious about getting their money back, they may be hesitant to invest.
By asking for a loan instead, you can guarantee them that you will return them whether or not your firm succeeds. If you go this path, make sure you keep track of everything.
Debt
In certain instances, debt can be a very effective way to raise finances. Debt includes short-term loans and lines of credit. You can also borrow against the assets of your company, such as real estate, equipment, and intellectual property.
Another option that many entrepreneurs overlook is the supplier chain. In many cases, your manufacturer may be able to issue lines of credit to cover the cost of supplies or labour.
Debt comes with its own set of disadvantages, so talk to a financial advisor or your CFO about the suitability and risks of a debt vehicle.
Final Thoughts
It’s critical that you think about these possibilities and then consult with your legal and financial advisors to assess them more thoroughly. Each choice comes with its own benefits and drawbacks, so weigh all of your options to see which, if any, are best for your company.
Coffeemug.ai has a large network of investors, financial consultants, and industry professionals who can help you figure out how to get started. Sign up and make your aspirations a reality.
FAQs
Q.How can I get funding without giving up equity?
A. Start funding your business through non-dilutive funding without worrying about giving up your equity. Non-dilutive funding is a type of financing where you do not give away any part of your equity but receive funds to reach your business goals. Here are funds by the non-dilutive way:
- Loan agreements
- Business Grants
- License agreements
- Royalty financing
- Tax credits
Q. Do investors always get equity?
A. Angel investors typically ask for a 20 to 25 percent return of the money they invest in your company. Most investors like venture capitalists and others may ask for 40 percent of the business, which can be riskier but remember the money is not a loan. The money they are investing in may not be returnable, so equity is necessary.
Q. Can equity shares be bought back?
A. The repurchase of shares by a company that issued them is known as “stock buyback”. The issuing company pays shareholders the market value per share and re-absorbs the amount of its ownership that was previously allocated among public and private investors.
Q.How much equity is an idea worth?
A. It solely depends on the quality, depending on the amount of technology and innovation that gets involved. The scorers get divided between the idea, business plan, domain expertise, commitment, risk, and responsibilities.
